After President Trump’s market moving comments on the dollar yesterday all eyes were on the PBOC and Chinese central bank did not disappoint devaluing the yuan to its lowest level in a year and sending the dollar lower in morning Asian trade.

USDJPY traded to a low of 112.20 in Asian dealing but the pair found support after USDCNY hit some sellers in a late Asin session trade. Chinese authorities have been responding to Mr. Trump’s threat of tariffs but continuously devaluing the yuan a policy move that has the impact of making exports into China more expensive.

Trump has been clearly bothered by this tactic and yesterday’s comments reflected his frustration at losing the battle in the trade war as our major trading partners have essentially devalued their currencies over the past several months. The PBOC did so with direct market fixing, while the ECB simply jawboned the currency lower with Mr. Draghi’s dovish comments.

In either case, the fixed income markets remained nonplussed with Mr. Trump’s meddling in monetary policy with rates hike expectations remaining unchanged. If US growth remains on pace or accelerates, Mr. Trump’s comments will be quickly forgotten. However, recent signs suggest that growth may have peaked and while job openings are plentiful wage growth has actually turned negative on a year over year basis. If inflation continues to rise due to price shock effects of the tariffs while wage growth stagnates the Fed will find itself in the unenviable position of overseeing rising price pressures and slower growth, with Trump very likely adding to their problems by pressuring them to halt.

For now, FX has found a quiet equilibrium at the current levels with the dollar index continuing to hover at 95.00 resistance. If the White House continues to walk back its comments today the buck may see the bid return, but yesterday’s move clearly sapped the bulls enthusiasm for now and only a break of 113.50 on USDJPY and 1.1500 on EURUSD would signal that the dollar rally is back.